The majority of Justices optimistically assumed that appropriate disclosure would accompany the increased political spending. But while the flood of money has certainly materialized, increasing to an un-imaginable level as the presidential campaign heats up, the anticipated disclosure is nowhere to be seen.

Unfortunately, shareholders and voters will not have a full understanding of corporate America's role in the upcoming 2016 election because Congress has decided to interfere with the SEC's rulemaking ability when it comes to corporate political disclosure.

Amazingly, a single sentence tucked into a 2,009-page budget document effectively stopped the SEC from requiring public companies to disclose information about political spending.

Section 707: Tying the Hands of the SEC

There was a collective sigh of relief in December of 2015 when the $1.8 trillion budget package passed both houses and was signed into law by President Obama with uncharacteristic bipartisan cooperation. However, a ‘gotcha’ was buried in Section 707 of the omnibus budget agreement that affects anyone with an interest in transparent elections:

“None of the funds made available by any division of this Act shall be used by the Securities and Exchange Commission to finalize, issue, or implement any rule, regulation, or order regarding the disclosure of political contributions, contributions to tax exempt organizations, or dues paid to trade associations.”

Disclosure: Essential to the SEC Mission, Essential to Shareowners

A great deal of SEC rulemaking focuses on requiring public companies to disclose “material” information that shareowners and other stakeholders feel they need to make informed decisions. Clearly, many investors and other stakeholders believe political spending of shareholder dollars by corporations is, indeed, material:

There was a groundswell of support for mandatory political spending disclosure in the wake of the Citizens United decision, as evidenced by the record-breaking 1.2 million comments submitted to the SEC regarding a rulemaking petition asking for full political spending disclosure rules for companies. These comments included a bipartisan letter from former SEC commissioners.

More than 500 shareholder resolutions filed on corporate political activity since Citizens United was passed in 2010, according to the Sustainable Investments Institute. The disclosure proposals garnered a strong (25% to 30%) average support level each year.

Many companies have voluntarily initiated disclosure, leading to the successful withdrawal of many of these proposals.

A recent Public Policy Polling survey shows strong bipartisan support for SEC political spending disclosure requirements, with both Democrats and Republicans expressing an average support rate of 88%.

Disclosure: Essential to Our Democracy

It seems clear that disclosure of political spending is “the will of the people,” but for now there are interests at work to thwart appropriate disclosure while stoking the outside financing of our electoral process. As the USA Today editorial board points out, “Politicians typically know who is financing their campaigns, even when the sources can legally be kept secret. Under the current system, the only people who don’t know what’s going on are the voters.”

There can be little doubt that Citizens United has unleashed an incredible escalation of political spending, and the vehicles of choice are the so-called Super PACs as well as trade associations. Some commentators are calling this new state of affairs the new “Wild West.”

Consider These Facts

While we are still nine months out from the 2016 Presidential election, spending by presidential contenders is already about $1 billion, with almost half coming from no contribution limit Super PACs.

Funding from disclosed sources reveals that about 60% of the approximately $1 billion in PAC money spent on federal elections since 2010 came from less than 200 individuals and their spouses.

In the 2014 election cycle, dark money made up 28% of all spending in competitive Senate races. Dark money is an increasing concern in judicial elections as well.

Some of the most powerful and highest spending trade associations in the nation, including the Chamber of Commerce and The National Association of Manufacturers, are equating freedom of speech with secrecy in their quest to keep the identities of their corporate political donors from the public domain.

What Can Be Done?

While the repeal of Citizens United is highly unlikely for the foreseeable future, efforts to counter its effects and advocate for fair disclosure and oversight continue on several fronts. Concerned investors, including First Affirmative, continue to press for voluntary disclosure. This strategy has been partially successful, and as more companies comply, more pressure is placed on non-disclosing peers.

A large group of lawmakers, regrettably only Democrats, signed off on a letter to the SEC specifically indicating that Section 707 of the spending bill does not keep the SEC from “discussing, planning, investigating, or developing plans or possible proposals for a rule or regulation relating to the disclosure of political contributions.” Time will tell whether the SEC will act on this interpretation.

President Obama mentioned political spending in his State of the Union address. With less than 300 days left in his second term, and with a recalcitrant Congress, the President appears to be poised to issue an executive order that would require companies doing business with the federal government to disclose their political contributions. That could go a long way toward providing the disclosures that responsible investors are looking for.

First Affirmative understands that the ways we save, spend, and invest can dramatically influence both the fabric and consciousness of society. We believe that in addition to the benefits of ownership, investors bear responsibility for the impact our money has in the world. Are you making conscious decisions about the impact of your consumer purchase and investment decisions?

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